May 23, 2007 by Addison Wiggin & Ian Mathias

• Oil heading north again… Brent crude above $71… will Iran keep throwing fuel on this fire?
• Trade talks sputter in China… Alan the omniscient speaks
• Vultures circle over the U.S. market… feed on an “insane” glut of distressed debt
• More bean counters in the East than ever
• Gold is the new S&P -- a revealing chart
• Canuck bank chief reinforces our faith in gold

Brent crude prices climbed back above $70 today. Apparently, the Iranians rebooted their uranium enrichment program, sending jitters up the collective geopolitical spine.

In Washington, trade talks with China ended… badly. Eh, not so much “badly” as “totally useless.”

The U.S. has asked that China let new securities firms enter the Chinese markets. And once there, that they be able to do more joint ventures. The U.S. also wants more Wall Street schmendricks to be able to throw their money around on Chinese trading floors.

The Chinese are going to buy more “energy and environmental technology” from the United States, and take “unspecified steps” to fight piracy of DVDs and other goods. Yeah, right.

After three days of chatting, pounding coffee and snuffing out cigarettes, nary a word in the agreement about the yuan’s trading band with the U.S. dollar or the historic trade imbalance between the two nations.

“Those talks were such a disaster that Hank Paulson came out and started reading his statement to the media before the Chinese rep ever walked in the room,” observed Dave Gonigam, a writer in residence here at The 5 and a 20 year vet of the news media. “Either Paulson is clueless about diplomacy or he dissed them big-time.

“China's economic growth continues to rock the boat,” notes Chuck Butler, “and as long as they continue to grow at hyperspace speed, their trade surplus will continue to soar... And the U.S. trade deficit will keep having sand kicked in its face... And that will bring the lawmakers out of the woodwork with their protectionism bills.”

For the first time in history, more Asians will take the Chartered Financial Analyst (CFA) exam than Americans. The FT reported yesterday that 52,900 Asians will vie for the right to count beans professionally… while the U.S. will field 45,400.

What will life be like, we often wonder, in this New Asian Era? Why not join us in Vancouver July 24-27, 2007, to find out? We’ve assembled an impressive array of speakers to highlight our eighth annual Agora Financial Investment Symposium, including Bill Bonner, Nassim Nicholas Taleb, James Howard Kunstler, Doug Casey, Mark Skousen and many, many others.

Details: Rim of Fire, Vancouver 2007

Alan Greenspan, the omniscient, said yesterday he thought the Chinese market was headed for a sharp correction. (Think he’s been reading The 5? Heh.)

“The vultures are starting to circle,” Capital & Crisis’ Chris Mayer told The 5 this morning. We thought maybe Chris had slipped something into his morning tea.

“Vultures… you know… investors who dine on troubled companies, breaking them up, selling them or turning them around.” Tons of margin debt, lousy credit ratings and a flood of junk bonds have these investors waiting for the overinflated market to drop.

Edward Altman, famed finance professor and long-time guru of distressed debt, has never seen anything like the current state of the market. From The Economist: “[Altman’s] diagnosis: ‘almost insane.’ The glut will surely end dramatically, he says.”

“That’s where the vultures come in,” said Chris. “They buy during fire sales from distressed sellers, picking up valuable assets on the cheap. This tactic can bring huge profits. Buyers of troubled American power companies, to give you one recent example, realized triple-digit returns.”

For more on this unique but powerful investment strategy, see:

Vulture Investing… for “Sweat Hogs”…

“For the better part of two decades, gold exhibited an inverse correlation or noncorrelation with the S&P,” wrote the Rude Awakening’s Eric Fry this morning. “But over the last few months, the gold/S&P correlation has swung from consistently negative to sharply positive. Gold might as well be a member of the S&P 500.”

“Historically,” Eric goes on to say, “whenever the S&P zigged in one direction, gold would zag in the other direction… Today, cautious investors continue to allocate a large portion of their wealth toward gold and gold stocks. But gold may no longer be the all-weather hedge that its admirers expect. Gold's behavior relative to stock prices has changed… a lot.”

So when the market finally corrects, will it take gold down with it? Read today’s Rude Awakening to find out...

“In the coming years, monetary authorities will find it more and more difficult to maintain confidence in paper money,” said our very own Dan Amoss. “The ultimate destination of the almighty U.S. dollar will be no different; it’s only a matter of time before this currency makes its way to the museum.”

Dan was responding to Bank of Canada chief David Dodge’s comments earlier this week. “It is possible there could at some point be a unified North American currency similar to Europe’s euro,” said Mr. Dodge. (Is Mr. Dodge reading our commentary, too? Geez. We’re flattered.)

“In Dodge’s worldview, we might as well eliminate the entire idea of sovereign countries,” chimed Dan. “Heck, it would be easier to tinker with a unified world currency than implement his ivory-tower monetary policies under the current monetary system. Dodge would probably have some tough competition from Ben Bernanke for the job of ‘global central banker.’”

These people make the decision to buy and hold gold pretty easy.

“Isn't it usually the smart move to fade the central banks?” asks a reader.

“Five years ago, at its low, central banks were dumping gold to get into higher-yielding investments and missed almost a triple so far to buy 5% U.S. govies. Now they are dumping dollars after it has already fallen 50%.”

That we’d agree with. However, the reader continues…

“I find it strange that financial writers will criticize central bank policies and monetary inflation but then claim the same central banks have great wisdom when they are doing something that supports their view of the financial future.”

We don’t ever recall claiming central bankers had great wisdom… or having a clear view of the financial future ourselves, for that matter.

Regards,
Addison Wiggin

P.S. Just wanted to make you aware. From time to time, we open up the Agora Financial Reserve to new membership. Reserve members, if you don’t know, receive all Agora Financial publications for a one-time, upfront fee and a small annual maintenance charge. It’s a great deal. And it only gets better as we add new writers and products to the roster.

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P.P.S. Want to know why Iran will never give up its nuclear program? Click here: